The Karnataka RERA, through its chairman has cautioned the builders and developers throughout the state that they would either have to register themselves mandatorily with RERA or face stringent action. There are approximately 1700 projects registered with the Karnataka RERA Authority, out of which 725 have been approved. The approval of 573 projects has been in progress and the remaining would get the nod after getting additional information. The Chairman also cautioned that the Authority would find out with help of other governmental agencies how many projects are to be registered and those who are unregistered would be severely penalised, to almost 10% of the project cost. The authority has so far received 218 complaints, from the buyers, most of which has been resolved. The authority, which is typically designed to be buyer friendly, is also willing to help the developer or the promoter in case of any issues to be sorted. Would the Developers register themselves or “face the music”?

Should the Realty Sector particularly the stamp duty be brought within the ambit of GST? According to the Associated Chamber of Commerce and Industry of India, the apex Industry Body, if the realty sector is brought within the ambit of GST it should be along with the stamp duty and moderate rate, and should not add to the cost of housing and construction. Certain Industry experts feel that the inclusion of real estate in the Goods and Services Tax (GST) regime may prove to be a positive move for consumers who will gain from greater transparency, more regulation of the sector and possibly lower price on purchase of new property. Certain others feel that the inclusion of Realty Sector in GST regime, could curb the black money being largely circulated, since the realty sector majorly thrives of unaccounted money. According to certain other experts, Realty Sector witnesses the maximum amount of tax evasion and therefore has to be brought under the indirect taxation regime.

However, would this be a possibility, particularly when the Realty Sector is subject to state levy of taxes rather than the centre, more particularly when the cement is still subject to a levy of 28% GST?

Highway developers would now be rated by the Quality Control India (QCI) based on their performance. Their ratings, which will be dynamic, will be put in public domain.
The idea of giving this task to engage a third party is aimed at ensuring unbiased ratings of the highway builders and developers.

The rankings will be done primarily taking into account the milestones that developers reach for each work awarded to them. If they miss the targets despite having all the clearances and land availability, then their rankings will be low. The contractors can also update their details, which will be verified and will be reflected in the changed rankings.
These rankings will also set the ground for restricting National Highways Authority of India or any other central government agency under the ministry to award any fresh work until the companies improve their performance and achieve milestones.

This is being seen as a better solution than blanket blacklisting or barring highway developers from bidding in new projects.

A few projects awarded under build operate and transfer (BOT) are moving at a snail’s pace and these remain major concerns for NHAI and highways ministry. In the past three years, more projects have been awarded under Engineering Procurement Construction (EPC) model where government foots the entire bill and private players have no risk.

The government could consider relaxing the permanent establishment rules to attract fund managers who manage global investment funds to operate out of India.

India, in 2015, had introduced a special tax regime for offshore fund managers. The government had then said that an offshore fund would not be exposed to Indian tax on its global income just because its fund manager was located in India. In other words, taxation would not be dependent on where the fund manager was sitting -Mumbai, Hong Kong or Singapore. However, the government had put some conditions which the fund managers and foreign investors were required to abide by. Later, in 2016, the Central Board of Direct Taxes (CBDT) announced some leeway for such funds. However, most funds have still stayed away from moving to India, blaming local conditions that they termed as tough.

The issues cited by funds include the requirement to reveal the names of all investors and to make sure that Indian investors don’t have more than 5% of the total money held by the funds.Many big funds have claimed that while they can provide details of direct investors -which are often other funds -they have no visibility of indirect investors.

Typically, funds could have investors comprising global asset managers operating a fund of funds strategy or regulated and discretionary wealth managers allocating a part of the wealth managed by them on behalf of their clients. Asking the eligible funds to confirm indirect participation of resident Indians in such cases is practically impossible; the requirements ought to be limited to direct participants lion investment in the funds.

The intention to put such a condition was tripping. However, tax to curb round-tripping. However, tax experts said those fund managers sitting in India should have an equal ground with those outside.

Are there some issues under Section 9(A) of Income Tax Act which are keeping foreign funds from setting up base in India? The demand has been to relax the norms around the number of employees that the fund has to maintain in India and relax certain other norms around taxation of FPIs (foreign portfolio investors) in India.

The government may be considering offering some flexibility around transfer-pricing provisions, said tax experts. The problem now is that a fund may have tax implication if its manager is found to be charging more than 5% lower or higher than the average fee charged by others. Foreign funds are demanding that the onus here must only be on the fund manager and the funds must be ring-fenced.

Would the fee arrangements be subject to the transfer pricing provisions, since the fund and the fund manager are in any case deemed to be associated enterprises?

It came as a recent piece of news that the legislature was planning to churn out a legislation whereby they could bring in Real Estate under the Umbrella of GST. Have we ever wondered as to what prompted the Financial Minister to state so? According to him, the one sector in India where maximum amount of tax evasion and cash generation takes place is the real estate, which is still outside GST, therefore there is a strong case to bring real estate into GST. How far is this feasible? So far as the realty sector is concerned, under-construction properties are taxed at 12% apart from the Stamp Duty from 4 to 8% and registration charges, and property tax (annual municipal levy) on a property. Before the advent of GST, service tax was applicable at 4.5% on under-construction properties. However, no credit of tax paid on goods namely on VAT and excise duty was allowed to developers. For a completed property, GST is currently not applicable. Apart from the above, the computation of revised sale price is a complex as well as time-consuming task. Developers have to depend upon their contractors to know the VAT and excise duty incidence and have to wait for the project to complete before they know how much price reduction can be done finally. While the incidence would depend upon the type of project, estimates suggest that price reduction, even if done on estimated basis, is unlikely to be sufficient to bridge the gap between GST at 12% and service tax at 4.5%. However, the buyers of under-construction properties to re-negotiate with their developers on how much less amount they will have to pay in the wake of ITC (Input Tax Credit). This means that whatever construction takes place post-GST, the developer can claim ITC which can be passed on to the consumer. But with the imposition of GST on under constructed properties, aren’t the homebuyers reeling towards buying a ready to move in homes as compared to the under constructed ones?
From a consumer’s viewpoint, paying GST and stamp duty for an under-construction property leads to an overall tax outgo of 17-18%, however, a ready-to-move-in project, a consumer would only have to shell out on stamp duty. The Developers would not be able to claim input credit and it would become a cost to them. Consumers who have invested into projects that are almost complete will face the brunt of the new policy on the amount to be paid under GST. As a large part of the construction of their project is over beyond one year, their developer will not be able to claim input credit. Although the government has allowed past one-year to claim credit, a majority of them either have not maintained the requisite documents such as invoices or have incurred the taxes beyond past one year. Wouldn’t complying with the anti-profiteering provision be a huge task? While this is a good principle that can be applied in case of tax saving, if the same is mixed with change in the procurement cost it goes into a grey area. Will it be applied on a project basis, state basis or pan-India basis? Will there be any index for reference?
There is a growing clamour from a large number of states to bring real estate fully under GST. This means that GST should be charged on the sale of completed buildings. Shouldn’t the government either substantially reduce stamp duty or eliminate it so as to not double tax the consumer?

A recent study report of CREDAI, the real estate Developer’s body, revealed that the supply of affordable houses has increased by 27%. What is the factor that contributed towards this sector of housing? The answer is that the initiatives of the government, to boost its flagship programme, has lured many developers to offer its services to lower income and middle income group. Among the new launches, the Mumbai topped the list with a whopping 40% increase in housing supply, followed by Kolkatta and Pune. Mumbai witnessed the highest number of launches, at over 19400 new residential houses until September 2017, out of which affordable housing sector had a share of close to 10000 units registering a rise of 300%, when compared to the previous year. What is the reason for this enhanced growth rate in the affordable housing sector? The key to this is that the implementation of RERA and GST has boosted the confidence of home-buyers, who were swinging in a dilemma to buy a house. The enhanced confidence resulted in many enquiries for the right kind of properties in which witnessed good traction during the current festive season. So would we see more developers investing in this sector?

Thousands of residents living in the new sectors will continue to face connectivity issues, say developers with projects in the new sectors, if a policy intervention addressing issues delaying construction of 24m-wide roads in these sectors (58-118) isn’t taken soon.

According to Master Plan 2031, the 24m approach roads to projects are to be built by the developer/landowner in whose licensed area the road is proposed. However, in many cases, these roads never see light of day as one or more landowners refuse to part with their portions of land for roads.

Multiplicity of ownership causes a major problem in connectivity in new sectors. For instance, in Sector 62, the 24m approach road passes through projects of three developers. Since they are still being built, the developers have not worked on the 24m road, impacting connectivity to other projects in the area.

What is delaying development of sector roads in Gurgoan? Can the developers and state authorities work together for the sake of infrastructure building which would not only benefit those who have already bought into projects in these areas, but also attract new customers?

Mahindra Lifespaces Developers, the real estate and infrastructure development arm of the Mahindra Group, has introduced a new brand of industrial clusters located across India.

Under the new brand ‘ORIGINS by Mahindra World City’, the company’s first two projects will come up in North Chennai and Ahmedabad, with an estimated investment of Rs 600 crores.

The first phase of proposed North Chennai project will have 264 acre development and this is a joint venture between Mahindra World City Developers and Japan’s Sumitomo Corporation. Total size of this project will be 500 acres.

The second project is located near Ahmedabad, with a phase 1 development of 268 acres, and is being developed along with International Finance Corporation (IFC) as a strategic partner. The project’s total size will be up to 350 acre.

Together, these industrial clusters are expected to create direct employment for around 20000 persons and will target companies across the engineering, medical equipment, food processing and logistics sectors, amongst others, Mahindra Lifespaces said in a release.

ORIGINS by Mahindra World City will comprise of industrial clusters spanning 250 – 600 acres, and located in high growth corridors across India. These industrial clusters will enable faster go-to-market for both domestic and global companies by way of clear land titles; plug-and-play infrastructure; in-house expertise in operations and security; and a range of business support services such as warehousing, logistics, banks, food courts, etc.

Mahindra World City’s developments in Chennai and Jaipur together span nearly 4500 acres; house 150 global and domestic companies that have created direct employment for over 45,000 persons; have generated exports exceeding $ 1.75 billion annually, the company added.

With India expected to emerge among the top five manufacturing countries globally, sustainable and future-ready business ecosystems will act as a game-changer for inclusive growth, job creation and productivity enhancement. ORIGINS by Mahindra World City embodies the Mahindra Group’s vision to create world-class urban infrastructure in India.

A major part of black money in India is held in the form of benami properties (gold and cash are other forms). In a bid to fight against the black money held in form of cash, the Government of India announced Demonetisation on November 8, 2016. Now certain stringent measures to curb the black money are expected on benami properties as well.

Would this ‘tough action’ be in the form of another legislation, since Indian Government is known for passing numerous legislations, but fail miserably in implementing most of them? The best example, is the Benami Transactions (Prohibition) Act, passed in 1988 was gathering dust without any action.

Though the present government added more teeth to it by amending it recently (Benami Transactions (Prohibition) Amended Act, 2016), activities to catch benami properties are still going on slowly. For example, this amended Act came into existence from November 1, 2016. However, action taken is restricted to a few immovable properties and bank deposits after demonetisation (bank deposits are also treated as property under this Act).
Finding the real beneficiary of benami properties is a Herculean task and that is the main reason for its slow implementation.

What are the measures to speed up this information gathering? For this the government should come out with cash reward up to Rs 1 crore for ‘secret informers’ (those who give tips to tax agencies). But the success rate will be less because people will be scared that some rogue employees from these agencies will leak the information of the informer. For example, similar rules in income tax and customs rules are not fetching big information. Since most people already have an Aadhar number, asking them to link it to their property documents is a better option.

The main advantage of this strategy is that the tax authorities will get details about ‘legal owners’ (owner as per property documents) immediately. Several historical property deals might have happened in fictitious names and they will get stuck immediately.

Several black money hoarders also used to register properties in other’s name (e.g. in the name of servants, some family members who are poor, etc) after getting their signatures (these poor people have no idea what these signatures are meant for).

In these cases, the original property documents are kept by the ‘original owners’ and in most cases, they also keep a power of attorney signed by ‘legal owners’.

Once the Aadhaar linkage happens, tax authorities can approach the ‘legal owners’ and it can be treated as benami property if the ‘legal owners are unaware or denies knowledge of the ownership’.

Even if the ‘legal owner’ takes onus and claims that it is his property, he needs to show the ‘source of income’ for buying that property (e.g. will be difficult for a house maid to show source for property worth crores).

Will this amount to harassing the ‘genuine tax payers’ as the Aadhaar opponents will put it?

No, because there are several provisions in the Benami Transactions (Prohibition) Amended Act, 2016 to protect them. For example, the usual transactions like buying property in the name of spouse, kids, parents, joint names with siblings, etc is already exempt in the Act. However, they need to show the source of money used for such purchase.

Will this amount to some discomfort to ‘genuine tax payers’? Yes, because they may have to visit the registrar’s office for updating their Aadhaar number.

However, most of them will support this move because it will result in unearthing huge black money. Only thing, since this process will be time consuming (some people may be working in cities, but may have properties in villages), government should give enough time to property owners for doing this.

Coimbatore Local Planning Authority has started compiling the list of development fee defaulters after knowing that the leading property developers in the city have dodged paying the mandatory fee for more than a decade. The state exchequer had faced a revenue loss of close to Rs 18.5 crore as leading realtors from Coimbatore failed to pay the mandatory infrastructure and amenities (I&A) charges.

Though a batch of realtors have approached the court questioning the rationale behind fixing the I&A rates, others defaulted payment for no valid reason, documents sourced through RTI reveal.

Of the 33 pending cases in the office, only eight are in subjudice. The remaining builders, who have made a huge profit by selling or renting out housing units in these lands, have neither approached the court nor Directorate of Town and Country Planning (DTCP) seeking a clarification.

These violators were completely let off the radar until it was brought to the notice of the concerned authorities. Soon after, the DTCP head office in Chennai has instructed Coimbatore LPA, which topped the defaulters list, to compile the list of violators and send it to them without further delay.

Two lists are currently being prepared – builders who have approached the court and others who went ahead with the construction of buildings only after sending an application for planning permission. It was further revealed that DTCP authorities had held talks with legal experts with the state government to sort out the issue soon and take necessary action towards this. Across the state, nearly 120 builders owe the government close to Rs 58 crore as I&A charges.

Once the legal issues were resolved, DTCP has the powers to return the application filed earlier with the concerned offices in their respective jurisdiction for planning permission.